Wapda, KESC draining resources

Published August 5, 2002

Pakistan’s two major state enterprises, Wapda and the KESC, continue to bleed financially despite regular pumping of billion of rupees into them by successive governments. But the latest offer of Rs30 billion (Rs15 billion each) to Wapda and the KESC did not reportedly go well with the World Bank and the IMF who have started insisting that both the state corporations should be put up for sale so as to avoid further loss of resources.

The example of Pakistan Telecommunication Company Limited (PTCL) is being given that it was not expected to offer even about one billion dollar after disinvesting its 18 to 26 per cent shares along with the transfer of management to the strategic buyer due to continued world recession and slow down of the bigger economies specially that of USA and western countries. Had the PTCL been offered for sale few years ago, it would have offered more than $3 billion. Donors said and the officials of the ministries of finance and the privatisation have reportedly agreed that restructuring of both the state entities should be achieved within this year so that they could be privatized in 2003.

Officials concerned said that Wapda’s privatization could take some time because it has to be first corporatized as was earlier planned. Moreover, it was said that the senior authorities of WAPDA were resisting the privatisation of their organisation.

The Privatization Commission (PC) seems inclined to disinvest the KESC, specially after the Asian Development Bank offered $150 million for the restructuring of the organisation. According to minister for privatisation, the KESC is incurring Rs50 million losses daily on account of line losses and theft and that it has to be disinvested as early possible. But some officials believe that the KESC privatization is difficult as no government can take the risk of getting hundreds of people jobless when a new buyer takes over. The issue can create problems in the city of Karachi.

Also the PC officials are not sure that they could take up the task of privatizing Wapda, unless instructions are issued from the highest level. Privately, all the concerned people agree that WAPDA should be immediately corporatized and privatized to reduce its losses and thus stopping it from burdening people for increasing tariff every now and then.

According to the World Bank’s latest report, Country Assistance Strategy (CAS) Wapda’s management has taken step to improve its efficiency and finances through a focus on loss reduction, improved billing and collections, and redress of WAPDA’s financial difficulties. For the KESC, after several years of trying to improve the utility’s operational and financial performance, the government has opted for fast-track privatisation with the help of the ADB. “Even with these measures, many regulatory implementation issues remain. Tariff standards and rules are vague, and clear policy guidelines from the government on future competitive market structure are lacking. Private investors are unlikely to respond unless further progress is made on creating an enabling regulatory environment in the sector by strengthening the independence of the regulatory agency (NEPRA), reducing regulatory risks by moving toward formula-based and multiyear tariff setting mechanisms, and establishing a legal framework for safeguarding foreign investments”, report further stated.

In power, the vision is to build a competitive electric power system consisting of autonomous, financially viable, and efficiently operated entities governed by an independent regulatory authority. Commercialisation leading to privatisation forms the cornerstone of the government’s power sector reforms, which according to the World Bank requires credible pricing and regulatory frameworks to improve efficiency and attract private investment. “Despite the government’s commitment to this vision, progress in implementing it has been painfully slow. The four year old NEPRA has not been able to play its regulatory role effectively because of lack of capacity and weaknesses in the regulatory framework regarding tariff setting policy. It has not been able to find a balance between the interests of consumers and producers. Improvements in the operational performances of WAPDA and KESC also have lagged behind. In fact the government recognises that the large losses of the KESC may endanger some of its fiscal achievements and poses therefore an important risk for macroeconomic balances. Adjustments in tariffs have been largely inadequate to finance the viability of power supplies”, the report added.

Generally, it is agreed in unofficial and unofficial quarters that without the privatisation, the state sector can not be saved from Rs100 billion annual loss, be it a Wapda or the KESC. The fact of the matter is that the privatization remained slow during the present government time. It was partially due to the effects of September 11 events of last year and subdued international environment. But this can not be ignored that privatisation could not take off as local and foreign investors did not show much interest specially in those loss making units which were put up of for sale. Now the government believes that its privatisation plan specially during 2002-2003 will meet with success as the bigger entities like the PTCL, PPL, the OGDC, the PSO and the Habib Bank are ready for disinvestment. But to this date no decision has been taken about the UBL.

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